Cryptocurrency is a digital or virtual form of money that uses cryptography to provide security and control over transactions. It operates on a technology known as blockchain, which is a distributed and decentralised registry.
Unlike traditional fiat currencies such as dollars or euros, cryptocurrency exists solely in digital form. Its creation and management does not depend on a central bank or government. Cryptocurrencies provide anonymity and secure transactions through the use of cryptography.
Some of the best known cryptocurrencies include Bitcoin (Bitcoin), Ethereum (Etherium) and Ripple (Ripple). Cryptocurrencies can be used for a variety of purposes including buying goods and services from online shops, investing, sending money and more.
However, it is worth noting that cryptocurrencies can also be subject to volatility and investment risk. Therefore, it is important to be cautious and informed before deciding to buy or use cryptocurrency.
How does blockchain work?
Blockchain is a technology that enables the storage and transfer of information in a distributed and non-decentralised environment. Let’s take a look at how blockchain works in simple language:
- Blocks: A blockchain consists of a chain of blocks. Each block contains information about multiple transactions (e.g., transferring money or writing data). Each block has a unique identifier, called a hash, and a reference to the previous block.
- Distributed: Instead of storing information in one central location, the blockchain distributes copies of its registry among many computers called nodes. The nodes work together to validate and verify transactions.
- Consensus: Decision-making on the blockchain is based on consensus among the nodes. A consensus rule determines which transactions are allowed and how they are added to the blockchain. Different blockchains may use different consensus algorithms such as Proof of Work (PoW) or Proof of Stake (PoS).
- Hashing: Hash functions are used to assign unique identifiers to blocks. Hashes are the results of mathematical calculations performed on the block data. Each block contains a hash of the previous block, thus providing a chain of blocks.
- Security: Blockchain ensures that data is secure and untraceable using cryptography. Transactions are recorded on the blockchain and protected using digital signatures. Every node in the network verifies and validates transactions, making them secure and impossible to change.
- Reliability: Blockchain also provides fault tolerance. Because the blockchain is stored on multiple nodes, even if some nodes fail or attempt to make changes, the remaining nodes continue to store and maintain the integrity of the blockchain.